Fe­lix Pereira

To­day, we fo­cus on the three funds list­ed on the lo­cal ex­change.

Prae­to­ri­an Prop­er­ty Mu­tu­al Fund (PPMF)

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PPMF's re­sults for the half-year to March 2013 showed a prof­it of $179.7k. This re­sult com­pares with a prof­it of $2.8 mil­lion for the com­par­a­tive pe­ri­od in 2012. For the full year end­ed Sep­tem­ber 2012, PPMF reg­is­tered a loss of $6.4 mil­lion.

In or­der to place these re­sults in­to some con­text, we will first look at the changes in the fund's in­come stream. Nor­mal­ly the largest item, rental in­come de­clined by more than $540k to reg­is­ter at $4.21 mil­lion in the cur­rent pe­ri­od; in the first six months of 2012 this source of in­come was $4.75 mil­lion.

Most­ly ac­count­ing for this re­duc­tion was the sale of three of its prop­er­ties, which was ex­e­cut­ed in the ear­ly part of the cur­rent re­port­ing pe­ri­od. The sale of these prop­er­ties, which pro­duced a gross in­flow of $10.025 mil­lion, al­lowed the fund to record a mod­est gain of $525k. For 2012, there was no com­par­a­tive trans­ac­tion.

A new line item shows mar­ket val­ue ap­pre­ci­a­tion in fi­nan­cial as­sets of $370.4k. Re­lat­ed to these ac­qui­si­tions was the re­ceipt of div­i­dend in­come of $24.7k. For both these items there were no com­par­a­tive fig­ures for the half-year to March 2012. This sig­ni­fies their re­cent ac­qui­si­tion. Dur­ing the cur­rent pe­ri­od, $7.85 mil­lion was ex­pend­ed on the pur­chase of new in­vest­ment as­sets.

In­come from ser­vice charges im­proved from $227k in 2012 to $475k in the cur­rent pe­ri­od. Mean­while, in­ter­est in­come de­clined to $344.5k from $410.8k in the com­par­a­tive pe­ri­od for 2012. In to­tal, in­come for the cur­rent six months closed at $5.62 mil­lion; this was $2.38 mil­lion less than the $8 mil­lion reg­is­tered for the first half of 2012.

In the 2012 pe­ri­od the fund record­ed re­alised and un­re­alised ex­change gain of $2.62 mil­lion; in the cur­rent pe­ri­od, this line item shows a loss of $325.4k. It is this swing of $2.94 mil­lion that would have ac­count­ed for the ma­jor dif­fer­ence in in­come gen­er­a­tion be­tween the two pe­ri­ods.

The com­po­si­tion of the fund's as­sets pri­mar­i­ly shows a de­cline in its hold­ings of in­vest­ment prop­er­ties ac­com­pa­nied by an in­crease in its in­vest­ment as­sets. In the case of the for­mer, the sums fell from $148.2 mil­lion as at Sep­tem­ber 2012 to $138.4 mil­lion as at the end of March 2013. Con­verse­ly, the lat­ter item rose to $71.8 mil­lion at the end of the cur­rent pe­ri­od from $63.6 mil­lion as at Sep­tem­ber 2012.

Sig­nif­i­cant­ly, the fund's cash hold­ings de­clined to $787.6k from its Sep­tem­ber 2012 bal­ance of $2.1 mil­lion. Con­verse­ly, "oth­er re­ceiv­ables" in­creased from $344.8k at Sep­tem­ber 2012 to $3.54 mil­lion as at the end of March 2013.

The as­set val­ue of the fund re­mained large­ly un­changed from its Sep­tem­ber 2012 val­ue of $5.43; its cur­rent share price of $3.50 rep­re­sents a 35.4 per cent dis­count to its net as­sets val­ue. Giv­en the un­cer­tain­ty as to whether the fund will be liq­ui­dat­ed ac­cord­ing to its orig­i­nal­ly sched­uled No­vem­ber 2014 date or be ex­tend­ed by a fur­ther three years, in­vestors seem to be wait­ing on the side lines.

Al­though this de­ci­sion is not one to be tak­en light­ly or quick­ly, most in­vestors seem to dis­like un­nec­es­sary or pro­longed un­cer­tain­ty. The fact that no nar­ra­tive ac­com­pa­nied the half-year re­port could sug­gest that a de­ci­sion may be close; it is pos­si­ble that this ver­dict might be an­nounced be­fore the end of its third quar­ter in June.

The Fortress Caribbean Prop­er­ty Fund (CPF)

To­tal in­come for the Fortress Caribbean Prop­er­ty Fund (CPF) for the six months end­ing March 2013 in­creased to Bd$3.76 mil­lion from Bd$3.56 mil­lion for the com­par­a­tive pe­ri­od in 2012 or by 5.7 per cent.

The biggest con­trib­u­tor to this im­prove­ment was the re­duc­tion in fair val­ue loss­es from Bd$645k down to Bd$385k, or by Bd$260k. The af­fect­ed prop­er­ties are Apes Hill, Li­on Cas­tle and Chat­tel House. Part­ly off­set­ting this im­prove­ment was a re­duc­tion in net rental in­come; this was due to in­creased va­can­cy in Carlisle House.

Net rental in­come fell to Bd$4.05 mil­lion from last pe­ri­od's Bd$4.12 mil­lion. The gain on the sale of fi­nan­cial as­sets im­proved from 2012's Bd$69.8 mil­lion to Bd$75.7 mil­lion in the cur­rent pe­ri­od. Start­ing from a small base, in­ter­est in­come in­creased by 64 per cent to Bd$17.9 mil­lion from last year's Bd$10.9 mil­lion.

To­tal ex­pens­es rose by Bd$147k to reach Bd$1.74 mil­lion from last pe­ri­od's Bd$1.59 mil­lion. The prin­ci­pal rea­son for this was a huge in­crease in pro­fes­sion­al fees; this item in­creased from Bd$139.5 mil­lion last year to Bd$250.9 mil­lion.

To a less­er ex­tent, the fund record­ed a net loss on the sale of re­al es­tate avail­able for re-sale of Bd$36.1k; there was no com­par­a­tive ex­pense for the ear­li­er pe­ri­od. Thus, to­tal com­pre­hen­sive in­come reg­is­tered at Bd$2.029 mil­lion; of this to­tal, Bd$993k was at­trib­ut­able to com­mon share­hold­ers.

The fund's cash bal­ances fell from Bd$2.36 mil­lion as at the end of Sep­tem­ber 2012 to Bd$1.37 mil­lion as at the end of March 2013. This re­duc­tion was large­ly due to the pay­ment of a div­i­dend, which con­sumed Bd$1.11 mil­lion.

Al­so con­tribut­ing to this de­cline was loan re­pay­ments of Bd$1.024 mil­lion and pay­ments to non-con­trol­ling in­ter­ests of Bd$0.9 mil­lion. De­spite these com­mit­ments, the fund in­creased its short-term de­posits by Bd$240k to Bd$289.2k.

The fund's net as­set val­ue at Bd$1.40 re­mained un­changed from its Sep­tem­ber 2012 val­u­a­tion.

In Bar­ba­dos, the fund con­tin­ues to trade at a huge (45 per cent) dis­count to its in­trin­sic val­ue. Be­fore the end of 2013 the fund's man­agers ex­pect to re­ceive pro­pos­als from pro­fes­sion­al ad­vi­sors that would guide them on op­tions for en­hanc­ing share­hold­er val­ue and re­duc­ing the dis­count on its shares.

Con­tract­ing eco­nom­ic ac­tiv­i­ty and in­creased va­can­cies in the Bar­ba­dos econ­o­my are now threat­en­ing to put at risk the abil­i­ty of the fund's Bridgetown ten­ants to meet their com­mit­ments. This de­vel­op­ment makes it in­creas­ing­ly ur­gent for the fund to con­sid­er how it op­er­ates.

Per­haps, fund man­age­ment and in­vest­ment ad­vi­sor fees that seem to bear al­most no re­la­tion­ship to prof­itabil­i­ty, are two ar­eas that need to be looked at more care­ful­ly.

Cli­co In­vest­ment Fund (CIF)

The Cli­co Trust Cor­po­ra­tion, which op­er­ates the Cli­co In­vest­ment Fund, made its first div­i­dend pay­ment of $0.56 on Feb­ru­ary 21, 2013. This dis­tri­b­u­tion to its unithold­ers amount­ed to $114.24 mil­lion.

For the pe­ri­od end­ed March 31, 2013, the fund's net as­set val­ue was $24.9206; this was an im­prove­ment from the $24.2297 shown as at the end of Jan­u­ary 2013. The ma­jor rea­son for this was the rise in the price of Re­pub­lic Bank's shares, which moved from $105.50 as at the end of Jan­u­ary to $108.90 as at the end of March 2013.

This change of $3.40 per share was large­ly re­spon­si­ble for the re­duc­tion in the in­vest­ment reval­u­a­tion re­serve from a neg­a­tive $169.5 mil­lion as at the end of Jan­u­ary to a neg­a­tive $33.26 mil­lion at the end of March 2013. As a con­se­quence, the to­tal net as­sets of the fund im­proved from the Jan­u­ary bal­ance of $4.94 bil­lion to $5.08 bil­lion at the end of March 2013.

Dur­ing the cur­rent pe­ri­od the fund re­ceived $4.83 mil­lion in in­ter­est in­come. This re­ceipt boost­ed its undis­trib­uted in­come to $17.1 mil­lion. In the state­ment of fi­nan­cial po­si­tion this bal­ance is rep­re­sent­ed by fixed de­posits of $2 mil­lion, cash of $2.73 mil­lion and ac­crued in­come of $12.44 mil­lion.

Re­cent­ly, Re­pub­lic Bank's shares have crossed the $110.00 price lev­el; this im­prove­ment fur­ther en­hances the val­ue of CIF units. Let us use the fol­low­ing ex­am­ple to il­lus­trate how in­vestors ap­pear to be short-chang­ing them­selves.

The own­er­ship of every 100 CIF units rep­re­sents po­ten­tial own­er­ship of 19.64 shares in Re­pub­lic Bank Lim­it­ed. These shares are cur­rent­ly priced at $110.00 each, thus giv­ing the hold­er of 100 CIF units a fu­ture claims to at least $2,160.76. The CIF unit al­so gives the hold­er gov­ern­ment bonds with a face val­ue of $344.54. Thus, the to­tal cur­rent val­ue of 100 units is $2,505.30. At the cur­rent mar­ket price of $21.05, 100 units are val­ued $2,105.00; thus, in ef­fect, unithold­ers who sell are "giv­ing away" $400.30; this is more than the val­ue of the bond el­e­ment (plus a small bonus) of their hold­ings!

Ap­par­ent­ly, many unithold­ers' need for im­me­di­ate cash seems to be over­whelm­ing their ap­pre­ci­a­tion for the in­trin­sic and longer-term val­ue of the as­set that they were al­lo­cat­ed.